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What is 'Deflation' Deflation is a contraction in the supply of circulated money within an economy, and therefore the opposite of inflation. In times of deflation, the purchasing power of currency and wages are higher than they otherwise would have been. This is distinct from but similar to price deflation, which is a general decrease in the price level, though the two terms are often mistaken for each other and used interchangeably. BREAKING DOWN 'Deflation'
Deflation, Wages, and Productivity: Connecting the Dots. Home Â» Blog Â» 2015 Â» May Â» 26 Â» Deflation, Wages,â¦. Written by Frank Van Lerven on May 26, 2015. For the first time in half a century, the UK has officially entered deflation. But wait; is that a good thing or a bad thing? Why is there all of a sudden so much talk about wages and productivity? And exactly what is deflation again? Deflation in the UK Explained. Consumer prices have dropped by 0.1% over the course of the last 12 months. An annual drop in consumer prices is what economists refer to as âdeflationâ. According to figures given by the ONS, the last time consumer prices fell was in 1960.